July 30, 2025 • 23 mins
Watch Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Intelligence hosted by Paul Sweeney and John Tucker
-Joel Levington, Bloomberg Intelligence Global Director of Credit Research, discusses Harley Davidson earnings. Harley-Davidson shares rose after the sale of a minority stake in its captive-finance unit to KKR and Pimco.
-Jennifer Bartashus, Bloomberg Intelligence Senior Analyst, Retail Staples & Packaged Food, discusses Kraft Heinz earnings. Kraft Heinz Co. used price increases to help offset volume declines as the company continues a strategic review of its brands. The company beat Wall Street sales estimates, with organic revenue in the second quarter declining 2%, aided by pricing rising 0.7 percentage points.
-Michael Halen, Bloomberg Intelligence Senior Restaurant and Foodservice Analyst, recaps earnings from Starbucks. Starbucks Corp. sales and profit fell more than anticipated, with comparable sales dropping 2% in the fiscal third quarter. Chief Executive Officer Brian Niccol said the turnaround efforts are “ahead of schedule,” and he vowed to unleash “a wave of innovation in 2026.”
-Steve Man, Bloomberg Intelligence Global Autos and Industrials Research Manager, discusses Tesla agreeing to buy $4.3 billion worth of US-built batteries from LG Energy Solution Ltd., according to a person familiar with the matter.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. You're listening to the
Bloomberg Intelligence podcast. Catch us live weekdays at ten am
Eastern on Applecarplay and Android Auto with the Bloomberg Business app.
Listen on demand wherever you get your podcasts, or watch
us live on YouTube.
Speaker 2 (00:23):
It's called Harley Davidson. Now, John, you know I bought
a ride recently. You did not buy a Hardy. Let's
just make that clear. I bought a Vespa Piaggio scooter
fifty ccs of raw power. So you know, when you're
driving down the road and the guy and Holly Davison
comes the other way, you know, I wave, They don't
(00:44):
wave back. You know, I don't get the cool sign
like he're a bark but you're not anyway. Joe Levington,
he follows the all the credit stuff for a lot
of these industrial and transportation companies. He's a director of
credit research for Bloomberg Intelligence. Harley Davidson doc is up
twenty percent. Here what happened? Paul?
Speaker 3 (01:03):
You're on the Vestila. I would think you'd be coming out.
Are you coming out of your Ventley while you do that?
Speaker 2 (01:07):
Yeah, I'm vestment on a jersey Shore. You can find
me any day.
Speaker 4 (01:11):
Got I believe that. I believe Yeah, you know.
Speaker 3 (01:13):
The key for Harley isn't really their earnings, which were
really like not great, but the potential or not the potential,
but a steak sale of their captive finance company which
came in at a much higher price than people were expecting.
That's going to be used or the proceeds are one
point twenty five billion dollars, with the proceed used for
a mix of share purchases, paying down debt, and also
for capital investment.
Speaker 5 (01:34):
Okay, so when I go in to buy a Harley
Davidson motorcycle at the dealership, I finance it through this
part of Harley. That's exactly that's what they sold, or
that's part of what they're selling.
Speaker 4 (01:46):
Who's buying it and why sure KKR.
Speaker 3 (01:48):
And Pimpco are the buyers, each taking a four point
nine percent steak, and really they're buying it because that
business has been a very profitable business for many, many years.
It actually should be more than fifty percent of Harley's
overall profits. They actually make more money from the financing
side than they do from manufacturing vehicles right now, which
goes to the you know, the trouble that they're having
(02:09):
on the manufacturing side, or let's.
Speaker 2 (02:11):
Talk about the manufacturing side. What's the motorcycle market like
these days?
Speaker 4 (02:18):
The motorcycle business isn't bad.
Speaker 3 (02:20):
I think the challenge with Harley is that it's kind
of one of those melting ice cubes that sometimes you
see in the media world that you would know well
of if you go back ten years ago. The manufacturing side,
its sales are down thirteen percent over ten years. But
the real issue is that the margins have gone from
twenty percent, so they're making twenty cents on the dollar,
(02:41):
you know, ten years ago now they make.
Speaker 4 (02:43):
About five cents.
Speaker 2 (02:44):
Wow.
Speaker 3 (02:44):
And so it's really the profitability and the erosion and
not really playing to their strengths.
Speaker 2 (02:49):
Not because they can't raise prices or they're costing on them.
Speaker 4 (02:51):
Well, I think it's really they've kind of lost their
way a little bit.
Speaker 6 (02:54):
You know.
Speaker 3 (02:54):
They were talking today about their six thousand dollars motorcycle
that they're excited about, you know, and I know, like
it's the premium brand, it's that iconic image of a Harley,
it's that V eight engine playing to the electrician or
the plumber, you know, the mechanic that has an eighty
to one hundred thousand dollars income and owns a Mustang, Like,
(03:16):
that's who they should be playing to in that forty
to six year old age rings, Like that's their customer.
But they've tried to move out into different segments of
the marketplace and have really gotten hurt and eroded their image.
Speaker 2 (03:28):
I can't think of a more American made product anywhere
than Harley Davidson. So are they immune from tariffs? Does
that give them an advantage versus some of these Japanese brands.
Speaker 3 (03:39):
They're not immune from them, but they do have twenty
five percent of their business in Europe and another twenty five.
Speaker 2 (03:46):
Percent in Asia.
Speaker 3 (03:47):
But really, like the US is where they is, where
they're big, and where they dominate. They just haven't done
a great job of marketing to that person and putting
engineering into that customer.
Speaker 5 (03:57):
Should I be more excited about Harley Davidson an stock
hog or Harley Davidson bonds?
Speaker 3 (04:05):
Well, I just look at the bonds and I'm not
that excited about the bonds. But what I will say
for them is that they're going to remain investment grade
after the sale, and they trade very wide to their
ratings and so like that is always an interesting combination
that people look.
Speaker 5 (04:20):
At what does that yield?
Speaker 7 (04:21):
Or well they have a variety of issues, right, Yeah,
but I would say that in general they trade about
twenty to thirty basis points wide of where the ratings are.
Speaker 3 (04:32):
So what credit rader thinks, and usually bonds trade to
what the raiders think.
Speaker 2 (04:36):
How about you also cover the auto sector. How's the
credit of the auto industry out there?
Speaker 8 (04:41):
Because this whole tariff situation, the uncertainty associated with transition
to evs, Like I just say to myself, every time
I look at some of the stocks, I can't find
a scenario to.
Speaker 2 (04:53):
Own any of the stocks.
Speaker 3 (04:54):
How about the bonds, Yeah, well, you know it's interesting
because the bonds are a different world.
Speaker 2 (04:58):
Right.
Speaker 3 (04:58):
All of the issues that you see in autos apply
to pretty much everybody except Ferrari, Right, whether it's tariffs
or the EV transition being slower or maybe not actually
happening in the US, all of these challenges still exist.
But the difference between an equity investor and a bond
investor is that your typical mind is three years of maturity, right,
(05:19):
because it's largely tied to the captive finance company, right,
the financing of the loans and leases behind an auto,
And so it's a much shorter term way of thinking.
You know, can I get my money back in three
years supported by a vehicle which will have a residual
value to it. It's a little different than saying, like, hey,
ten fifteen years out, what's my discounted cash flow? So
it's a very investible side from the from the credit side,
(05:42):
maybe not as much on the equity side.
Speaker 5 (05:44):
Will they tell us more about the future. Can it
serve as kind of a canary in the coal mine
for a company looking at that end of it.
Speaker 4 (05:52):
At the captive side.
Speaker 3 (05:53):
Yeah, yeah, Well it's very short term sighted, right, so
you have to you know, for all the treasures and
CFOs that are out there, and as CEOs, they're thinking
long term and where can I take my company? How
can I grow it into something bigger and more meaningful?
A bondholder just wants to.
Speaker 2 (06:09):
Get paid back, that's right.
Speaker 4 (06:11):
See, this is where I learned different outlook.
Speaker 2 (06:13):
Equity is soft, debt is hard. You can always tell
me to go, you know, go some way.
Speaker 5 (06:18):
We call this smart money.
Speaker 2 (06:19):
It is so smart money. The actually and they're tending
to be pessimists in general. Where's the equity? People were
always class half full? This is what could go right
for these guys. The whole world is what could go wrong.
So anyway, Joe Levington one of the best global director
research Bloomberg in Intelligence, covering all that autos, industrial transportation,
all that kind of stuff from the credit perspective.
Speaker 1 (06:40):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on Apple Coarcklay and Android
Auto with the Bloomberg Business App. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (06:54):
John Tucker Pauls when you live here in our Bloomberg
Interactive Broker Studio streaming live on YouTube. John, you know,
with all this inflation over the last several years, I
found myself at the shopping at the supermarket, buying more
store branded products.
Speaker 5 (07:07):
The white label stuff.
Speaker 2 (07:08):
But I'll tell you what I haven't is ketchup. I'm
sticking with Heines, no matter what I mean that case
ketchup to me cats Up Ketchup. However you play it,
how does.
Speaker 5 (07:18):
Jim say it?
Speaker 2 (07:20):
I don't know. Jen Bartash, she does this stuff for
a living. She covers all the staples companies that package
foods company. She also covers all the supermarkets too, So
if you want to talk inflation on the stuff we
buy at the store, Jen Bartashes is the person to
talk to. She joins us from Princeton here, So Jen
Craft hines, they put out some numbers that show they
still have some price power out there in the marketplace,
(07:41):
don't they?
Speaker 9 (07:42):
They do, Paul, and it was all by By all
things considered, it was a pretty decent quarter for craft Tigns.
But they're still in progress of trying to really turn
around and accelerate parts of their business. And although Ketchup
is a brand where a lot of people have a
lot of loyalty, there are a lot of other parts
their portfolio where they're still really trying to invest to
(08:03):
regain consumer uptake of their products.
Speaker 5 (08:05):
What's like a growth area for this business, like AI
powered mustard or.
Speaker 9 (08:12):
Yeah. As funny as it sounds, one of the really
interesting things about AI with regards to food companies is
that it's really allowing and unlocking in an acceleration of innovation.
And so although it's a little bit tongue in cheek
For Kraft Tignes, one of the big areas of focus
for them is the flavors, and that's the sauces. Because
(08:32):
right now, consumers like things, they like different taste experiences,
and sauce is a very easy and economical way to
do that. So they've been really pushing the accelerator in
that area.
Speaker 2 (08:43):
All Right, you go to any restaurant diner, USA, it's
kind of at your booth would be ketchup mustard. Maybe
that's basically it. Now, what's there what's as staple as
much as ketchup is is hot sauces. Really Yeah, the
kids you're doing hot sauces don't get it. I mean
they put it on everything, and they got it at
(09:03):
their desks at work. What is this? Jen? Talk to
those about this hot sauce thing? Where did that come from?
Speaker 9 (09:09):
Well, you know, there's a real generational shift in terms
of flavor profiles that consumers like. And what we see
is that in younger generations, spicy, the balancing of sweet
and spicy, or salty and sweet, those kind of inner
those those kind of dual type taste flavors are things
that younger generation really are into and they're showing they're
(09:31):
backing that up with why they're buying, whether it's how
they're consuming it in restaurants or what they're buying when
they are purchasing and things to make it home. And
that's why you see other companies like McCormick really doubling
down on spice and flavor, and the hot sauces are
doing really well for them as well.
Speaker 5 (09:48):
And in terms of moderating rate of inflation, well, I
haven't seen it. At the food town. I'm paying more
for everything, including seems Heinz products. Am I right?
Speaker 9 (10:00):
You are right in with regards to certain categories. I
will say retailers are pretty good about trying to bring
down prices where they can as quickly as they can,
because they really are trying to get consumers to value
them in terms of being a loyal you know, to
be loyal to their retail operations. But inflation has been persistent,
(10:21):
and commodity costs are down from previous highs, but they're
still elevated relative to historic levels. That means that these
companies have absorbed a lot and don't have a lot
of room to absorb more, so there is still some
selective price increases that are going through. You know, tomatoes
are a unique category because we're looking at prices going
(10:41):
up for tomatoes through the end of the year because
of some trade agreement changes that have happened.
Speaker 5 (10:46):
Oh well, if you're in New Jersey, you kind of
grow your own.
Speaker 2 (10:48):
We got a Jersey tomato.
Speaker 6 (10:51):
Sure.
Speaker 2 (10:51):
Hey, Jen, I mean you are the expert when someone
says someone asked me, like, hey, who bears the brunt
of these terrors? Is it the order? Is it the
you know, the package goods company is at the supermarket?
You cover pretty much all of that, Jen, how do
you explain it to people? Like where are those cost
increases get born?
Speaker 9 (11:11):
So, I think there's a little bit of a distribution
across the whole supply chain, and so everybody's taking a
little bite of it, But that also includes consumers at
the end of that chain. The problem with that and
so you know, if a retailer is negotiating, they're negotiating
with their package food counterparts, they're you know, absorbing a
little bit of cost, but ultimately the consumer has to
(11:34):
pay a little bit more as well. Because there's been
so much inflation over the last couple of years that
there's just no more bandwidth to absorb it and to
protect and shield consumers from it. So it is inevitable
that price increases and inflation is going to hit that
end consumer. We just haven't really seen the full brunt
of the tariff impact yet because of all of the
(11:54):
delays and the implementation and things like that. We're really
expecting to see that tick up in the second half.
Speaker 5 (12:00):
Company like craft PNEs. Is there some sort of dividing
line or are they just kind of experimenting in terms
of like eating the costs the impact on the margins
and raising prices for consumers. How does that work?
Speaker 9 (12:13):
They're really looking at it in a very targeted way,
so it's more like category by category or even sometimes
product by product areas where you want to make sure
that you have at least part of your product portfolio
that preserves value for consumers. So that means not changing
the pack size, that means not changing the price, but
being selective and maybe increasing the price somewhere else in
(12:35):
your portfolio to sort of offset that. So it's a
big balancing act. One of the really great things that's
come out in the last couple of years is that
through AI and through big data, these companies have gotten
much more sophisticated in how to maintain that balance, and
so that's actually really helped in why we've seen some
of the margin expansion that we've seen at least the
gross margin line for some of these companies in the
(12:56):
last couple of years.
Speaker 2 (13:00):
Thirty seconds left here are they going to split this
company up? Didn't I when are we talking to you
about this a week or two ago?
Speaker 9 (13:05):
Yeah, there's you know, they they're exploring strategic strategic options,
and I think one of the big obstacles is that,
you know, what was rumored out there and the press
was that they were going to spin the bulk of
their grocery business into some of the entity. The problem
is they've tried to sell a bunch of these brands
already and have been unsuccessful in doing so. So the
question is can they do this in a way that
bundles it, creates value for shareholders, and still gives them
(13:27):
the returns that they think they deserve for the brands
that they're looking to sell.
Speaker 2 (13:31):
All right? I looked at the comp function coNP for
craft Tigns last five years. Compounded annual return for the
stock wait for it, one percent per year that's it.
But on the flip side, they do pay a dividend
yield of five and a half percent, so you can
all in about six and a half percent. That's basically
it for that part of the world. I don't know.
(13:52):
And you pay, you pay a pe of you know,
ten times earnings. That's kind of the story for a
lot of that stuff in the consumer stable space.
Speaker 1 (14:00):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (14:14):
Let's get back to the restaurant business. I know the
restaurant business. I mean, I'm not sure about this whole
go to restaurants, restaurant almost every single day here, so
I know what's going on at there. Michael Hale and
he really knows what's going on with the restaurant business.
He covers all the restaurants and the food services companies
for Bloomberg Intelligence. Starbucks big turnaround story, Mike, is it working?
Speaker 10 (14:37):
You know, there was some positive points that Brian Nickel
hit on last night. You know the fact that their
value perception scores are the best they've been in two years,
and hourly turnovers down to forty nine percent, which is
actually phenomenal in the restaurant industry. Service times are improving,
customer satisfactions up, customer complaints are down. So with a
(15:00):
small beat on the US same store sales, you know,
and some.
Speaker 2 (15:05):
Of these these positives.
Speaker 10 (15:07):
He's pointing to, it's given bulls, you know, some confidence
that that a turnaround in its biggest market is near.
Speaker 5 (15:16):
What counts as innovation when you're basically selling coffee.
Speaker 10 (15:22):
Well, yeah, restaurants tend to get some shade by calling
you know, new menu items innovation. I'd say have One
of the more innovative products they're going to have is
protein cold foam. Cold foam sales are up twenty three
percent in the quarter, So they're going to launch new
protein cold foam and that's part of a broader initiative
to sell healthier items.
Speaker 5 (15:42):
Protein, web pham, cold phone.
Speaker 2 (15:45):
Hey do they have macha? Isn't that what the kids
are drinking?
Speaker 5 (15:48):
Is it Ai generated?
Speaker 2 (15:50):
Is it A?
Speaker 10 (15:52):
So they do have much I know they're they're going
to try to implement some debut some healthier food items
as well, because typically their offerings are pretty unhealthy generally.
You know, they made an effort to remove dies and
high fruit toast, corn syrup and stuff like that, and
(16:13):
so they're going to continue to move towards you know,
healthier options.
Speaker 2 (16:17):
Hey, Mike, let me ask you one question here on tariffs.
How do your companies, how are they exposed and how
are they dealing with it? What are you hearing from
your companies?
Speaker 10 (16:26):
You know, we're not hearing much because most of them
don't have much exposure. You know, Starbucks is one we're
probably we're watching most closely because of because of coffee, right,
and the impacts that taps can have on coffee prices.
But Starbucks and all the other coffee chains that we
follow are sourcing from many different countries.
Speaker 2 (16:46):
But you know, the.
Speaker 10 (16:47):
Restaurant business, most of the companies, all of the companies
are primarily sourcing their product in the countries that they're
operating in, right, And so most companies, you know, ninety
percent plus of the of the items that they're sourcing
are coming domestically.
Speaker 2 (17:04):
All right, let's go wings Baby. Wingstop stocks up twenty
four percent. John Tucker and I have never been to
wingstock We're going to the one on West fifty fifth
Street after the show. Here, what's going on to Wingstop? Yeah?
Speaker 10 (17:17):
So Wingstop had a phenomenal year last year, and the
stock is you know, had a pump bumpy time over
the last you know, we'll call it eight nine, ten months,
because investors knew that there was going to be a
top ham bottom line slowing this year. You know what
happened today. The top line slowing was a lot less
(17:37):
than expected. That unic growth was better than expected. I mean,
these stores are generating seventy percent cash on cash re
terms for their franchisees. People are lining up to open
new stores. And the same sort of sales decline was
a lot less than expected, just about a percent, lapping
a plus twenty four from last year.
Speaker 4 (17:56):
So less bad, less bad.
Speaker 10 (18:01):
Equals, you know, a lot of optimism around Winkstop, you know,
especially around the smart kitchen roll out. They cited, yes,
smart kitchen roll out.
Speaker 5 (18:11):
Go that AI team again there we go.
Speaker 10 (18:14):
Yeah, and so those those kitchens are you know, are
improving the service time significantly, making the jobs easier for
the employees, and it's actually driving better traffic and sales.
Four months after implementation, all right the.
Speaker 2 (18:28):
West fifty fifth Street, Manhattan Story Better get Ready, John
Tucker and Air coming over. Michael Halean, thanks so much
for joining us. Michael Handy covers all the restaurants for
Bloomberg Intelligence.
Speaker 1 (18:39):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business App. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (18:53):
John Tucker and Paul Sweeney, we're live here in our
Bloomerg Interactive Broker Studio. We're streaming live on YouTube as well.
Head over there and search Bloomberg Live Deal and that's
where you'll find is here. Tesla in the news yet again,
but this is for just a more mundane kind of
business piece of news. Tesla's agreed to buy go into
a battery supply pack with a company called LG Energy
(19:13):
four point three billion dollars worth of batteries or I
want to see what that means for Tesla, what it
means for just kind of this continuing transition to electric vehicles.
We need batteries, they need we need charging stations, all
that kind of stuff. Steve Mann joins his global Autos
and Industrials research channels for Bloomberg Intelligence. Steve talk to
us about this deal between Tesla and LG Energy. What
(19:35):
is Tesla signing up for here?
Speaker 6 (19:38):
Well, Tesla does have a pretty sizeable energy storage battery business.
So basically, these batteries are usually used at data centers,
used at various utility of power generation sites to kind
of even out, you know, power production between peaks and
(20:00):
valleys of usage. So it's it's a sizable business, and
more importantly, it is mundane. But it's a very profitable business.
So it's a thirty gross margin compared to cars that
they make today they're about low teens, so at least
(20:21):
double the gross margin, so very profitable. And this if
the LG deal sounds really really promising for that business
going forward.
Speaker 5 (20:32):
All right, So this has nothing to do with putting
LG's batteries in Tesla's electric vehicles.
Speaker 6 (20:39):
No, no, okay, it's I mean out there, it's.
Speaker 5 (20:42):
I can't get excited about cars, I got to admit.
But what I can get excited about is saving money.
And if I have batteries but store electricity when electricity
rates are lower, say in the overnight hours. Yes, that
excites me. How big of a business potentially is this
going forward?
Speaker 6 (21:03):
Yeah, you can actually consumers also, consumers can actually buy
those batteries and you know, install them in their house
and their garage and you know, maybe link that up
to a solar bunch of solar panels on the roof.
You know, consumers in some cases can effectively not even
have to pay that can actually make money selling power
(21:25):
back to the utilities.
Speaker 2 (21:26):
Nice Steve. The number one issue continues to be just
demand out there for Tesla products and deliveries and things
like that. Anything new that you can tell us here
about kind of what you're hearing at there.
Speaker 6 (21:39):
Yeah, on the car front, you know, earning is going
to be pretty volatile. I think in the next few quarters.
I think, as many know, the seventy five hundred EV
tax credit is going away at the end of September,
so we should see a surge of demand not just
for Tesla but the whole EV market here in the
US between now and in September, and Tesla is is
(22:02):
going to fall out in in in in meeting that demand.
I think they've actually built a little bit of inventory
even before this quarter uh to to to meet that demand.
But and then we can we can see the man
fall off, you know, in the fourth quarter and into
the first half of twenty twenty six. Now the only
(22:24):
the question is the can can Tesla you know, roll
out their cheaper vehicle and and hopefully create some demand
for that vehicle to offset the falloff in the overall
falloff and in the band from from the elimination of
the text credit.
Speaker 5 (22:42):
Is Elon back focusing on his companies.
Speaker 6 (22:46):
Yes, it seems like it. I mean, he hasn't been
really tweeting a lot on the politics, and I think
uh uh, various channels within the social media media have
indicated that he is uh focused, and I think he
himself had said on social media that he is full
on in managing Tesla and as was as other businesses.
Speaker 2 (23:09):
All Right, Steve, thanks so much for that quick update.
Appreciate it. Steve Ban Global Autos and Industrials research channels.
Bloomberg Intelligence.
Speaker 1 (23:15):
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Speaker 2 (00:23):
It's called Harley Davidson. Now, John, you know I bought
a ride recently. You did not buy a Hardy. Let's
just make that clear. I bought a Vespa Piaggio scooter
fifty ccs of raw power. So you know, when you're
driving down the road and the guy and Holly Davison
comes the other way, you know, I wave, They don't
(00:44):
wave back. You know, I don't get the cool sign
like he're a bark but you're not anyway. Joe Levington,
he follows the all the credit stuff for a lot
of these industrial and transportation companies. He's a director of
credit research for Bloomberg Intelligence. Harley Davidson doc is up
twenty percent. Here what happened? Paul?
Speaker 3 (01:03):
You're on the Vestila. I would think you'd be coming out.
Are you coming out of your Ventley while you do that?
Speaker 2 (01:07):
Yeah, I'm vestment on a jersey Shore. You can find
me any day.
Speaker 4 (01:11):
Got I believe that. I believe Yeah, you know.
Speaker 3 (01:13):
The key for Harley isn't really their earnings, which were
really like not great, but the potential or not the potential,
but a steak sale of their captive finance company which
came in at a much higher price than people were expecting.
That's going to be used or the proceeds are one
point twenty five billion dollars, with the proceed used for
a mix of share purchases, paying down debt, and also
for capital investment.
Speaker 5 (01:34):
Okay, so when I go in to buy a Harley
Davidson motorcycle at the dealership, I finance it through this
part of Harley. That's exactly that's what they sold, or
that's part of what they're selling.
Speaker 4 (01:46):
Who's buying it and why sure KKR.
Speaker 3 (01:48):
And Pimpco are the buyers, each taking a four point
nine percent steak, and really they're buying it because that
business has been a very profitable business for many, many years.
It actually should be more than fifty percent of Harley's
overall profits. They actually make more money from the financing
side than they do from manufacturing vehicles right now, which
goes to the you know, the trouble that they're having
(02:09):
on the manufacturing side, or let's.
Speaker 2 (02:11):
Talk about the manufacturing side. What's the motorcycle market like
these days?
Speaker 4 (02:18):
The motorcycle business isn't bad.
Speaker 3 (02:20):
I think the challenge with Harley is that it's kind
of one of those melting ice cubes that sometimes you
see in the media world that you would know well
of if you go back ten years ago. The manufacturing side,
its sales are down thirteen percent over ten years. But
the real issue is that the margins have gone from
twenty percent, so they're making twenty cents on the dollar,
(02:41):
you know, ten years ago now they make.
Speaker 4 (02:43):
About five cents.
Speaker 2 (02:44):
Wow.
Speaker 3 (02:44):
And so it's really the profitability and the erosion and
not really playing to their strengths.
Speaker 2 (02:49):
Not because they can't raise prices or they're costing on them.
Speaker 4 (02:51):
Well, I think it's really they've kind of lost their
way a little bit.
Speaker 6 (02:54):
You know.
Speaker 3 (02:54):
They were talking today about their six thousand dollars motorcycle
that they're excited about, you know, and I know, like
it's the premium brand, it's that iconic image of a Harley,
it's that V eight engine playing to the electrician or
the plumber, you know, the mechanic that has an eighty
to one hundred thousand dollars income and owns a Mustang, Like,
(03:16):
that's who they should be playing to in that forty
to six year old age rings, Like that's their customer.
But they've tried to move out into different segments of
the marketplace and have really gotten hurt and eroded their image.
Speaker 2 (03:28):
I can't think of a more American made product anywhere
than Harley Davidson. So are they immune from tariffs? Does
that give them an advantage versus some of these Japanese brands.
Speaker 3 (03:39):
They're not immune from them, but they do have twenty
five percent of their business in Europe and another twenty five.
Speaker 2 (03:46):
Percent in Asia.
Speaker 3 (03:47):
But really, like the US is where they is, where
they're big, and where they dominate. They just haven't done
a great job of marketing to that person and putting
engineering into that customer.
Speaker 5 (03:57):
Should I be more excited about Harley Davidson an stock
hog or Harley Davidson bonds?
Speaker 3 (04:05):
Well, I just look at the bonds and I'm not
that excited about the bonds. But what I will say
for them is that they're going to remain investment grade
after the sale, and they trade very wide to their
ratings and so like that is always an interesting combination
that people look.
Speaker 5 (04:20):
At what does that yield?
Speaker 7 (04:21):
Or well they have a variety of issues, right, Yeah,
but I would say that in general they trade about
twenty to thirty basis points wide of where the ratings are.
Speaker 3 (04:32):
So what credit rader thinks, and usually bonds trade to
what the raiders think.
Speaker 2 (04:36):
How about you also cover the auto sector. How's the
credit of the auto industry out there?
Speaker 8 (04:41):
Because this whole tariff situation, the uncertainty associated with transition
to evs, Like I just say to myself, every time
I look at some of the stocks, I can't find
a scenario to.
Speaker 2 (04:53):
Own any of the stocks.
Speaker 3 (04:54):
How about the bonds, Yeah, well, you know it's interesting
because the bonds are a different world.
Speaker 2 (04:58):
Right.
Speaker 3 (04:58):
All of the issues that you see in autos apply
to pretty much everybody except Ferrari, Right, whether it's tariffs
or the EV transition being slower or maybe not actually
happening in the US, all of these challenges still exist.
But the difference between an equity investor and a bond
investor is that your typical mind is three years of maturity, right,
(05:19):
because it's largely tied to the captive finance company, right,
the financing of the loans and leases behind an auto,
And so it's a much shorter term way of thinking.
You know, can I get my money back in three
years supported by a vehicle which will have a residual
value to it. It's a little different than saying, like, hey,
ten fifteen years out, what's my discounted cash flow? So
it's a very investible side from the from the credit side,
(05:42):
maybe not as much on the equity side.
Speaker 5 (05:44):
Will they tell us more about the future. Can it
serve as kind of a canary in the coal mine
for a company looking at that end of it.
Speaker 4 (05:52):
At the captive side.
Speaker 3 (05:53):
Yeah, yeah, Well it's very short term sighted, right, so
you have to you know, for all the treasures and
CFOs that are out there, and as CEOs, they're thinking
long term and where can I take my company? How
can I grow it into something bigger and more meaningful?
A bondholder just wants to.
Speaker 2 (06:09):
Get paid back, that's right.
Speaker 4 (06:11):
See, this is where I learned different outlook.
Speaker 2 (06:13):
Equity is soft, debt is hard. You can always tell
me to go, you know, go some way.
Speaker 5 (06:18):
We call this smart money.
Speaker 2 (06:19):
It is so smart money. The actually and they're tending
to be pessimists in general. Where's the equity? People were
always class half full? This is what could go right
for these guys. The whole world is what could go wrong.
So anyway, Joe Levington one of the best global director
research Bloomberg in Intelligence, covering all that autos, industrial transportation,
all that kind of stuff from the credit perspective.
Speaker 1 (06:40):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on Apple Coarcklay and Android
Auto with the Bloomberg Business App. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (06:54):
John Tucker Pauls when you live here in our Bloomberg
Interactive Broker Studio streaming live on YouTube. John, you know,
with all this inflation over the last several years, I
found myself at the shopping at the supermarket, buying more
store branded products.
Speaker 5 (07:07):
The white label stuff.
Speaker 2 (07:08):
But I'll tell you what I haven't is ketchup. I'm
sticking with Heines, no matter what I mean that case
ketchup to me cats Up Ketchup. However you play it,
how does.
Speaker 5 (07:18):
Jim say it?
Speaker 2 (07:20):
I don't know. Jen Bartash, she does this stuff for
a living. She covers all the staples companies that package
foods company. She also covers all the supermarkets too, So
if you want to talk inflation on the stuff we
buy at the store, Jen Bartashes is the person to
talk to. She joins us from Princeton here, So Jen
Craft hines, they put out some numbers that show they
still have some price power out there in the marketplace,
(07:41):
don't they?
Speaker 9 (07:42):
They do, Paul, and it was all by By all
things considered, it was a pretty decent quarter for craft Tigns.
But they're still in progress of trying to really turn
around and accelerate parts of their business. And although Ketchup
is a brand where a lot of people have a
lot of loyalty, there are a lot of other parts
their portfolio where they're still really trying to invest to
(08:03):
regain consumer uptake of their products.
Speaker 5 (08:05):
What's like a growth area for this business, like AI
powered mustard or.
Speaker 9 (08:12):
Yeah. As funny as it sounds, one of the really
interesting things about AI with regards to food companies is
that it's really allowing and unlocking in an acceleration of innovation.
And so although it's a little bit tongue in cheek
For Kraft Tignes, one of the big areas of focus
for them is the flavors, and that's the sauces. Because
(08:32):
right now, consumers like things, they like different taste experiences,
and sauce is a very easy and economical way to
do that. So they've been really pushing the accelerator in
that area.
Speaker 2 (08:43):
All Right, you go to any restaurant diner, USA, it's
kind of at your booth would be ketchup mustard. Maybe
that's basically it. Now, what's there what's as staple as
much as ketchup is is hot sauces. Really Yeah, the
kids you're doing hot sauces don't get it. I mean
they put it on everything, and they got it at
(09:03):
their desks at work. What is this? Jen? Talk to
those about this hot sauce thing? Where did that come from?
Speaker 9 (09:09):
Well, you know, there's a real generational shift in terms
of flavor profiles that consumers like. And what we see
is that in younger generations, spicy, the balancing of sweet
and spicy, or salty and sweet, those kind of inner
those those kind of dual type taste flavors are things
that younger generation really are into and they're showing they're
(09:31):
backing that up with why they're buying, whether it's how
they're consuming it in restaurants or what they're buying when
they are purchasing and things to make it home. And
that's why you see other companies like McCormick really doubling
down on spice and flavor, and the hot sauces are
doing really well for them as well.
Speaker 5 (09:48):
And in terms of moderating rate of inflation, well, I
haven't seen it. At the food town. I'm paying more
for everything, including seems Heinz products. Am I right?
Speaker 9 (10:00):
You are right in with regards to certain categories. I
will say retailers are pretty good about trying to bring
down prices where they can as quickly as they can,
because they really are trying to get consumers to value
them in terms of being a loyal you know, to
be loyal to their retail operations. But inflation has been persistent,
(10:21):
and commodity costs are down from previous highs, but they're
still elevated relative to historic levels. That means that these
companies have absorbed a lot and don't have a lot
of room to absorb more, so there is still some
selective price increases that are going through. You know, tomatoes
are a unique category because we're looking at prices going
(10:41):
up for tomatoes through the end of the year because
of some trade agreement changes that have happened.
Speaker 5 (10:46):
Oh well, if you're in New Jersey, you kind of
grow your own.
Speaker 2 (10:48):
We got a Jersey tomato.
Speaker 6 (10:51):
Sure.
Speaker 2 (10:51):
Hey, Jen, I mean you are the expert when someone
says someone asked me, like, hey, who bears the brunt
of these terrors? Is it the order? Is it the
you know, the package goods company is at the supermarket?
You cover pretty much all of that, Jen, how do
you explain it to people? Like where are those cost
increases get born?
Speaker 9 (11:11):
So, I think there's a little bit of a distribution
across the whole supply chain, and so everybody's taking a
little bite of it, But that also includes consumers at
the end of that chain. The problem with that and
so you know, if a retailer is negotiating, they're negotiating
with their package food counterparts, they're you know, absorbing a
little bit of cost, but ultimately the consumer has to
(11:34):
pay a little bit more as well. Because there's been
so much inflation over the last couple of years that
there's just no more bandwidth to absorb it and to
protect and shield consumers from it. So it is inevitable
that price increases and inflation is going to hit that
end consumer. We just haven't really seen the full brunt
of the tariff impact yet because of all of the
(11:54):
delays and the implementation and things like that. We're really
expecting to see that tick up in the second half.
Speaker 5 (12:00):
Company like craft PNEs. Is there some sort of dividing
line or are they just kind of experimenting in terms
of like eating the costs the impact on the margins
and raising prices for consumers. How does that work?
Speaker 9 (12:13):
They're really looking at it in a very targeted way,
so it's more like category by category or even sometimes
product by product areas where you want to make sure
that you have at least part of your product portfolio
that preserves value for consumers. So that means not changing
the pack size, that means not changing the price, but
being selective and maybe increasing the price somewhere else in
(12:35):
your portfolio to sort of offset that. So it's a
big balancing act. One of the really great things that's
come out in the last couple of years is that
through AI and through big data, these companies have gotten
much more sophisticated in how to maintain that balance, and
so that's actually really helped in why we've seen some
of the margin expansion that we've seen at least the
gross margin line for some of these companies in the
(12:56):
last couple of years.
Speaker 2 (13:00):
Thirty seconds left here are they going to split this
company up? Didn't I when are we talking to you
about this a week or two ago?
Speaker 9 (13:05):
Yeah, there's you know, they they're exploring strategic strategic options,
and I think one of the big obstacles is that,
you know, what was rumored out there and the press
was that they were going to spin the bulk of
their grocery business into some of the entity. The problem
is they've tried to sell a bunch of these brands
already and have been unsuccessful in doing so. So the
question is can they do this in a way that
bundles it, creates value for shareholders, and still gives them
(13:27):
the returns that they think they deserve for the brands
that they're looking to sell.
Speaker 2 (13:31):
All right? I looked at the comp function coNP for
craft Tigns last five years. Compounded annual return for the
stock wait for it, one percent per year that's it.
But on the flip side, they do pay a dividend
yield of five and a half percent, so you can
all in about six and a half percent. That's basically
it for that part of the world. I don't know.
(13:52):
And you pay, you pay a pe of you know,
ten times earnings. That's kind of the story for a
lot of that stuff in the consumer stable space.
Speaker 1 (14:00):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 2 (14:14):
Let's get back to the restaurant business. I know the
restaurant business. I mean, I'm not sure about this whole
go to restaurants, restaurant almost every single day here, so
I know what's going on at there. Michael Hale and
he really knows what's going on with the restaurant business.
He covers all the restaurants and the food services companies
for Bloomberg Intelligence. Starbucks big turnaround story, Mike, is it working?
Speaker 10 (14:37):
You know, there was some positive points that Brian Nickel
hit on last night. You know the fact that their
value perception scores are the best they've been in two years,
and hourly turnovers down to forty nine percent, which is
actually phenomenal in the restaurant industry. Service times are improving,
customer satisfactions up, customer complaints are down. So with a
(15:00):
small beat on the US same store sales, you know,
and some.
Speaker 2 (15:05):
Of these these positives.
Speaker 10 (15:07):
He's pointing to, it's given bulls, you know, some confidence
that that a turnaround in its biggest market is near.
Speaker 5 (15:16):
What counts as innovation when you're basically selling coffee.
Speaker 10 (15:22):
Well, yeah, restaurants tend to get some shade by calling
you know, new menu items innovation. I'd say have One
of the more innovative products they're going to have is
protein cold foam. Cold foam sales are up twenty three
percent in the quarter, So they're going to launch new
protein cold foam and that's part of a broader initiative
to sell healthier items.
Speaker 5 (15:42):
Protein, web pham, cold phone.
Speaker 2 (15:45):
Hey do they have macha? Isn't that what the kids
are drinking?
Speaker 5 (15:48):
Is it Ai generated?
Speaker 2 (15:50):
Is it A?
Speaker 10 (15:52):
So they do have much I know they're they're going
to try to implement some debut some healthier food items
as well, because typically their offerings are pretty unhealthy generally.
You know, they made an effort to remove dies and
high fruit toast, corn syrup and stuff like that, and
(16:13):
so they're going to continue to move towards you know,
healthier options.
Speaker 2 (16:17):
Hey, Mike, let me ask you one question here on tariffs.
How do your companies, how are they exposed and how
are they dealing with it? What are you hearing from
your companies?
Speaker 10 (16:26):
You know, we're not hearing much because most of them
don't have much exposure. You know, Starbucks is one we're
probably we're watching most closely because of because of coffee, right,
and the impacts that taps can have on coffee prices.
But Starbucks and all the other coffee chains that we
follow are sourcing from many different countries.
Speaker 2 (16:46):
But you know, the.
Speaker 10 (16:47):
Restaurant business, most of the companies, all of the companies
are primarily sourcing their product in the countries that they're
operating in, right, And so most companies, you know, ninety
percent plus of the of the items that they're sourcing
are coming domestically.
Speaker 2 (17:04):
All right, let's go wings Baby. Wingstop stocks up twenty
four percent. John Tucker and I have never been to
wingstock We're going to the one on West fifty fifth
Street after the show. Here, what's going on to Wingstop? Yeah?
Speaker 10 (17:17):
So Wingstop had a phenomenal year last year, and the
stock is you know, had a pump bumpy time over
the last you know, we'll call it eight nine, ten months,
because investors knew that there was going to be a
top ham bottom line slowing this year. You know what
happened today. The top line slowing was a lot less
(17:37):
than expected. That unic growth was better than expected. I mean,
these stores are generating seventy percent cash on cash re
terms for their franchisees. People are lining up to open
new stores. And the same sort of sales decline was
a lot less than expected, just about a percent, lapping
a plus twenty four from last year.
Speaker 4 (17:56):
So less bad, less bad.
Speaker 10 (18:01):
Equals, you know, a lot of optimism around Winkstop, you know,
especially around the smart kitchen roll out. They cited, yes,
smart kitchen roll out.
Speaker 5 (18:11):
Go that AI team again there we go.
Speaker 10 (18:14):
Yeah, and so those those kitchens are you know, are
improving the service time significantly, making the jobs easier for
the employees, and it's actually driving better traffic and sales.
Four months after implementation, all right the.
Speaker 2 (18:28):
West fifty fifth Street, Manhattan Story Better get Ready, John
Tucker and Air coming over. Michael Halean, thanks so much
for joining us. Michael Handy covers all the restaurants for
Bloomberg Intelligence.
Speaker 1 (18:39):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarplay and Android Auto
with the Bloomberg Business App. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 2 (18:53):
John Tucker and Paul Sweeney, we're live here in our
Bloomerg Interactive Broker Studio. We're streaming live on YouTube as well.
Head over there and search Bloomberg Live Deal and that's
where you'll find is here. Tesla in the news yet again,
but this is for just a more mundane kind of
business piece of news. Tesla's agreed to buy go into
a battery supply pack with a company called LG Energy
(19:13):
four point three billion dollars worth of batteries or I
want to see what that means for Tesla, what it
means for just kind of this continuing transition to electric vehicles.
We need batteries, they need we need charging stations, all
that kind of stuff. Steve Mann joins his global Autos
and Industrials research channels for Bloomberg Intelligence. Steve talk to
us about this deal between Tesla and LG Energy. What
(19:35):
is Tesla signing up for here?
Speaker 6 (19:38):
Well, Tesla does have a pretty sizeable energy storage battery business.
So basically, these batteries are usually used at data centers,
used at various utility of power generation sites to kind
of even out, you know, power production between peaks and
(20:00):
valleys of usage. So it's it's a sizable business, and
more importantly, it is mundane. But it's a very profitable business.
So it's a thirty gross margin compared to cars that
they make today they're about low teens, so at least
(20:21):
double the gross margin, so very profitable. And this if
the LG deal sounds really really promising for that business
going forward.
Speaker 5 (20:32):
All right, So this has nothing to do with putting
LG's batteries in Tesla's electric vehicles.
Speaker 6 (20:39):
No, no, okay, it's I mean out there, it's.
Speaker 5 (20:42):
I can't get excited about cars, I got to admit.
But what I can get excited about is saving money.
And if I have batteries but store electricity when electricity
rates are lower, say in the overnight hours. Yes, that
excites me. How big of a business potentially is this
going forward?
Speaker 6 (21:03):
Yeah, you can actually consumers also, consumers can actually buy
those batteries and you know, install them in their house
and their garage and you know, maybe link that up
to a solar bunch of solar panels on the roof.
You know, consumers in some cases can effectively not even
have to pay that can actually make money selling power
(21:25):
back to the utilities.
Speaker 2 (21:26):
Nice Steve. The number one issue continues to be just
demand out there for Tesla products and deliveries and things
like that. Anything new that you can tell us here
about kind of what you're hearing at there.
Speaker 6 (21:39):
Yeah, on the car front, you know, earning is going
to be pretty volatile. I think in the next few quarters.
I think, as many know, the seventy five hundred EV
tax credit is going away at the end of September,
so we should see a surge of demand not just
for Tesla but the whole EV market here in the
US between now and in September, and Tesla is is
(22:02):
going to fall out in in in in meeting that demand.
I think they've actually built a little bit of inventory
even before this quarter uh to to to meet that demand.
But and then we can we can see the man
fall off, you know, in the fourth quarter and into
the first half of twenty twenty six. Now the only
(22:24):
the question is the can can Tesla you know, roll
out their cheaper vehicle and and hopefully create some demand
for that vehicle to offset the falloff in the overall
falloff and in the band from from the elimination of
the text credit.
Speaker 5 (22:42):
Is Elon back focusing on his companies.
Speaker 6 (22:46):
Yes, it seems like it. I mean, he hasn't been
really tweeting a lot on the politics, and I think
uh uh, various channels within the social media media have
indicated that he is uh focused, and I think he
himself had said on social media that he is full
on in managing Tesla and as was as other businesses.
Speaker 2 (23:09):
All Right, Steve, thanks so much for that quick update.
Appreciate it. Steve Ban Global Autos and Industrials research channels.
Bloomberg Intelligence.
Speaker 1 (23:15):
This is the Bloomberg Intelligence podcast, available on Apple, Spotify
and anywhere else you get your podcasts. Listen live each
weekday ten am to noon Eastern on Bloomberg dot com,
the iHeartRadio app. Tune in and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
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